Demand for sheep and beef properties has been steady despite the global economic and geopolitical uncertainty.
The prices paid for sheep and beef properties across Canterbury and Southland have risen over the past 12-18 months due to continued strong returns, combined with farmers' intentions to purchase before interest rates hikes that are expected by the end of 2022.
We consider the underlying market for traditional sheep and beef breeding and finishing units is now positive on the back of strong fundamentals.
Pastoral farm returns
Pastoral farmers are currently benefitting from a period of above-average returns for lamb and beef over a prolonged period.
Lamb prices remained high this season due to reduced competition from Australian lamb, along with increased demand for higher-end cuts as the international restaurant trade bounces back. Favourable growing conditions were experienced throughout most of the country, except for Southland, which was impacted by summer drought.
While capacity at the meat processors remains tight, higher prices on offer reflect the international demand for lamb rather than competition between processors to secure supply.
Like lamb, beef returns were also strong. While exports to the United States faced increased competition from Brazilian beef, demand from China kept prices high, despite their Covid-19 enforced lockdowns.
Venison prices have returned to pre-pandemic levels, a result of increased patronage in European restaurants. Venison prices will however need to appreciate further to gain parity with lamb and beef returns.
Prices for mid to stronger grade wool remain at low levels, with many farmers now viewing wool as a cost-recovery exercise to offset the expense of shearing.
The Reserve Bank of New Zealand is expected to continue with upward adjustments to the OCR as it tries to control inflation. Russia’s invasion of Ukraine is adding to market uncertainty and at a farm level in New Zealand, the conflict is resulting in higher fuel and fertiliser input costs.
The labour market remains tight, with farmers seeking to retain experienced staff by increasing salaries. Similarly, labour challenges in associated shearing and meat processing industries are also impacting day-to-day farming operations.
South Island pastoral land market
While interest rates and on-farm inflation are increasing, strong farming returns are resulting in good levels of profitability. Competition from grain-fed meat is expected to decrease as the Ukrainian conflict impacts the global grain trade.
Growth in the New Zealand housing market has peaked, which should lead to an increased willingness from banks to extend credit to the agricultural sector, particularly on the back of strong returns.
While foreign direct investment is still restricted due to the requirements of the Overseas Investment Office, we are now seeing larger-scale properties transact at levels that indicate an increased pool of eligible New Zealand-based buyers.
Renewed interest in forestry has prompted diversification of traditional pastoral-based farming systems with plantation forests being established on less productive land. In the current market, there is significant demand for timber with some of the highest sustained prices being achieved for many years.
There is strong interest in traditional breeding country areas across New Zealand, which is providing a backstop for land values, particularly for steeper and marginal land.
Most sales involve traditional pastoral farmers. Decisions are often influenced by considerations around farming systems, risk mitigation and exploring synergies between arable, pastoral, dairy, and forestry farming classes.
More rural property market research
Canterbury Dairy Market Update | December 2021
Kiwifruit Property Market Report | December 2021
Central Otago Viticulture Property Market Update | November 2021
Canterbury Dairy support and arable land market | September 2021
Southland Dairy Property Market Update | August 2021
New Zealand Forestry Market Update| August 2021
Kiwifruit market update | May 2021
North Canterbury Sheep and Beef Property Sales Map | May 2021
Canterbury Dairy Property Market Update | April 2021
Southland Dairy Property Market Update | March 2021
Marlborough Viticulture Market Update | February 2021